Retirement Plans and Strategies Explained: How to Build a Financially Secure Future

Retirement planning isn’t what it used to be.

Just a few decades ago, most workers could rely on pension plans that provided a guaranteed, steady income for life. Combined with Social Security, which often covered a more sufficient portion of living expenses, retirement planning was relatively straightforward. Shorter life expectancies also translated to shorter retirement periods, which took some of the complexity out of financial planning.

Now, defined contribution plans — like 401(k)s — are the norm, transferring the responsibility of saving, investing, and managing withdrawals directly to individuals. At the same time, longer life expectancies, rising health care costs, and market volatility have made retirement planning more multifaceted and challenging than ever before.

According to a survey commissioned by the American Savings Education Council, only 42% of Americans aged 55–64 feel on track to retire when they originally planned (1) Meanwhile, 76% of respondents claim they understand the importance of saving for retirement, but only 39% have a retirement plan in place.

It’s no wonder that retirement confidence is at an all-time low (2).

There’s a clear disconnect between understanding and action. Whether driven by a lack of education, overwhelm, or simply not knowing where to start, many aspiring retirees have difficulty drawing up and navigating a path to retirement on their own.

In this article, we aim to demystify retirement planning by answering critical questions and providing strategies to help you retire with confidence.

Failing to plan is planning to fail.
A goal without a plan is just a wish.
Plans are nothing. Planning is everything.

Whichever proverb resonates with you most, the lesson is clear: planning is essential to any goal we set out to achieve. Whether for our careers, education, or personal goals, plans provide a road map to guide our actions and give us clarity, direction, and confidence. Proper retirement planning can help you navigate the unexpected, prepare for health care costs, support your pursuit of new hobbies and adventures, and even leave a legacy for future generations.

Ultimately, retirement planning is a gift to your future self and family.

However, despite these apparent advantages, a growing number of Americans believe they won’t be able to live comfortably in retirement. According to the National Institute on Retirement Security, 56% of Americans are somewhat or very concerned about attaining a financially secure retirement.3 This mindset could require retirees to work past their target retirement date, adding mental and physical stress that could impact their health and postponing activities they plan to enjoy more in retirement.

To avoid falling into this situation, it’s imperative to understand the different retirement planning tools at your disposal.

Retirement comes in all shapes and sizes, so, naturally, there are several types of retirement plans. To help you determine the right one for your needs, let’s review the most popular retirement accounts. 

IRAs and Roth IRAs

The two most common types of individual retirement accounts (IRAs) are traditional and Roth IRAs. They are best suited for individuals who wish to take advantage of certain tax benefits and save for the long term. While similar, traditional IRAs and Roth IRAs have distinct differences.

Traditional IRAs allow qualified individuals to contribute pretax funds — meaning you don’t need to pay taxes on these dollars until you withdraw them in retirement. Theoretically, you should be in a lower tax bracket once you start making withdrawals, but keep in mind they are taxed as ordinary income. 

Traditional IRAs are subject to contribution limits, which could be deductible depending on your modified adjusted gross income and whether you or your spouse have another retirement plan at work. If you were born after 1950, you’re generally required to begin taking required minimum distributions (RMDs) at age 73 — or at age 75 if you were born in 1960 or later (4).

Roth IRAs are similar to traditional IRAs, but contributions to Roth IRAs are not tax-deductible. That means your contributions are made with after-tax dollars and that the distributions you take in your retirement years are tax-free. Another main difference is that Roth IRAs have income limits.

Roth IRAs are subject to the same contribution limits as traditional IRAs. For 2024, the contribution limit for traditional and Roth IRAs is $7,000 or $8,000 per year if you are 50 or older (5). 

401(k) Plans

401(k)s are employer-sponsored retirement accounts designed to help workers put pretax dollars aside for retirement. While withdrawals are taxed as ordinary income in retirement, 401(k)s generally have much higher contribution limits than IRAs. 

Another significant advantage of 401(k)s is that many employers offer matching contributions up to a certain percentage, bolstering retirement savings over time at no additional cost to the employee. However, you should be aware that some employers impose a vesting schedule, tying the percentage of an employer’s contributions to your years of service or other milestones. 

403(b) Plans

403(b) plans are typically offered to employees of nonprofit organizations, schools, hospitals, and government organizations and to certain public-sector employees. With higher contribution limits, possible employer matches, and tax-deferred growth, these plans are very similar to 401(k) plans. 

However, 403(b) plans may offer fewer investment options than 401(k)s, lower administrative fees, and fewer regulations. 

SEP and SIMPLE IRAs

Simplified Employee Pension (SEP) plans enable employers to contribute to traditional IRAs for their employees. SEPs can be used by businesses of any size but are most common among small businesses or self-employed individuals who do not have access to other kinds of employer-sponsored retirement plans.

In the case of SEPs, the employer is the only contributor to the plan; unlike other retirement plans, employees cannot contribute, and employers must contribute an equal amount across their team. Self-employed individuals, on the other hand, can contribute up to 25% of their net earnings from self-employment into a SEP as their own employer. The contribution limit for 2025 is $70,000 (6). 

SIMPLE IRAs — or Savings Incentive Match Plan for Employees — are also an option for small businesses that wish to offer a retirement solution to their employees without sponsoring a retirement plan. Unlike SEPs, SIMPLE IRAs allow both the employer and employees to contribute. They have lower contribution limits than SEP plans, and they’re more prevalent in start-up environments.

While straightforward for both employers and employees, SIMPLE IRAs allow employers to choose between two ways to contribute: offering a match up to 3% of an employee’s compensation or 2% nonelective contributions for each employee. 

SEP IRAs and SIMPLE IRAs are both attractive options for small business employers. 

Pension Plans

Pension plans — or defined benefit plans — provide employees with guaranteed lifetime income based on salary and years of service. While pension plans have slowly become less popular as more employers offer defined contribution plans, 10% of private-sector nonunion workers still have access to a defined benefit pension plan today (7).

Pension plans are commonly offered to government agency employees, such as military personnel, teachers and school administrators, unionized workers in certain sectors (like manufacturing, construction, health care, and transportation) and large companies in certain industries. 

While rare, pension plans have little downside to employees other than requirements to adhere to vesting schedules.

Cash Balance Plans

A type of pension plan, cash balance plans are generally best suited for high earners or business owners closer to retirement who wish to make significant, tax-deferred contributions. However, cash balance plans come with a high price tag, as they involve complex calculations and administration. 

While expensive to manage, the benefits for employees are sizable. Employees can receive their plan balance as a lump sum upon retirement or as monthly annuity payments. They may use the funds in other retirement vehicles or annuities if they choose the former.

Choosing a retirement account type is just one piece of the puzzle. Effective retirement planning involves every corner of your financial life. 

Here are a few retirement strategies to consider. 

Income Planning

The goal of income planning is to ensure you have enough income in retirement while balancing long-term needs. It factors in all forms of income in retirement, including Social Security, annuities, investment income, and withdrawals from retirement accounts.

Asset Allocation

Asset allocation is the process of investing in different asset classes to balance risk and return. How you allocate your assets is usually determined by your risk tolerance, age, and other investment goals.

For example, young investors may allocate more of their assets to riskier investments, like stocks, because they have a longer investment horizon to retirement and more time to recoup potential investment losses. On the other hand, those close to retirement may embrace a safer asset allocation, putting more of their assets in bonds to avoid sharp market fluctuations getting in the way of their carefully laid retirement plans. 

Tax-Efficient Withdrawals

Withdrawals are taxed differently, depending on the account type. As we covered above, some account types are tax-deferred while others are tax-free. Balancing how much you withdraw, what accounts you withdraw from, and when you withdraw should be factored into the larger planning strategy to minimize your tax impact in retirement. 

Inflation Protection

The unfortunate reality is that no retirement plan is fully inflation-proof. However, careful planning and diligent savings that factor in cost pressures will help you withstand inevitable inflationary environments in the future. 

Long-Term Care Planning

Logic follows that you may require additional health care and support as you age. Long-term care planning requires estimating future health care costs and needs, incorporating them into your retirement savings and strategy to continue living comfortably later in life.

Retirement planning involves a lot of moving parts and pieces. However, choosing the right retirement strategy for you comes down to three main considerations:

• Risk tolerance is your ability and willingness to assume risk in your investment portfolios. Some people have a higher capacity for risk than others so that they may turn to investments with more risk and reward. Others are more comfortable with downside protection built into their retirement plans. 
• Investment horizon refers to the amount of time you have before retirement. A pre-retiree in their 50s or 60s has a much shorter investment horizon than someone in their 20s or 30s. Your investment horizon and risk tolerance are often highly correlated, as how much time you have to achieve your goals will usually determine how much risk you are willing to assume and how your assets should be allocated. 

Lifestyle and spending needs should also factor into which retirement plan and strategy you leverage. How much money you need in retirement to maintain your lifestyle will directly impact income planning and ensure tax-efficient withdrawals.

First, many employees with 401(k) plans often fail to invest enough to maximize employer-matched contributions. According to self-reported data from Fidelity, 22% of employees in Fidelity-serviced plans do not contribute enough to receive their full company match (8). 

These individuals are leaving free money on the table and missing out on maximizing their retirement benefits. Taking full advantage of employer contributions can provide a significant boost to your retirement savings over time. 

Additionally, many pre-retirees fall into the emotional trap of panicking during market downturns and selling their assets. Those closing in on their retirement date may be more susceptible to fear during dips or periods of economic uncertainty because their investment time horizon is short. 

However, this is exactly when you need to have confidence in your plan. A financial advisor can guide you through difficult times and help you avoid making emotional decisions. 

Many pre-retirees (and those early in the retirement planning process) can easily overlook future health care costs, potential long-term care needs, and years in retirement. After all, we can’t blame young savers for having difficulty imagining life 40 to 50 years down the road. The reality is that you must put yourself in your future self’s shoes to determine how much you need to save. 

Ultimately, the earlier you can begin saving and planning for retirement, the more likely you are to achieve your goals in your desired time horizon. 

Retirement planning is a complex and high-stakes experience.

But no matter where you are in your retirement planning journey, it’s never too late to ask for help. That’s where a financial professional can make a material difference. 

Enlisting the expertise of a retirement planning professional or financial advisor can be invaluable in guiding you on the path to success. An advisor will give you the confidence to navigate all of life’s twists and turns to achieve the life you want in your golden years. 

Schedule a free consultation with Pine Grove Financial Group to have an expert review your retirement plan today.

1. Bipartisan Policy Center, “Retirement Expectations Don’t Match Reality”
2. Employee Benefits Research Institute, “2024 Retirement Confidence Survey”
3. National Institute on Retirement Security, “Retirement Insecurity 2024: Americans’ Views of Retirement”
4. Congressional Research Service, “LRequired Minimum Distribution (RMD) Rules for Original Owners of Retirement Accounts”
5. Internal Revenue Service, “Traditional and Roth IRAs”
6. Internal Revenue Service, “Retirement plans for self-employed people”
7. Congressional Research Service, “Worker Participation in Employer-Sponsored
8. Pensions: Data in Brief and Recent Trends”
9. Fidelity, “How does a 401(k) match work?”